Russia warns Europe of gas supply cuts over Ukraine debt

President Vladimir Putin warned European leaders on Thursday Russia would cut natural gas supplies to Ukraine if it did not pay its bills and said this could lead to a reduction of onward deliveries to Europe.

In a letter to the leaders of 18 countries, he demanded urgent talks with Europe on pulling Ukraine’s economy out of crisis but made clear his patience was running out over Kiev’s $2.2 billion gas debt to its former Soviet master.

His comments were Russia’s most explicit threat to cut off gas to Ukraine, a move that could worsen a dispute over Moscow’s annexation of Crimea that has resulted in the worst East-West crisis since the end of the Cold war in 1991.

“Gazprom is compelled to switch over to advance payment for gas deliveries and in the event of further violation of the conditions of payment will completely or partially cease gas deliveries,” Putin said in the letter sent to European leaders including German Chancellor Angela Merkel, whose country is the largest consumer of Russian gas in the 28-nation EU.

“Undoubtedly, this is an extreme measure. We fully realise that this increases the risk of Ukraine siphoning off natural gas passing through Ukraine’s territory and heading to European consumers,” Putin wrote in the letter.

Russia meets 30 percent of Europe’s natural gas demand and half of its gas transit to the EU goes through Ukraine.

State-controlled gas producer Gazprom stopped pumping gas to Ukraine during price disputes in the winters of 2005-2006 and 2008-2009, leading to reduced supplies in European countries that receive Russian gas via pipelines that cross Ukraine.

Kiev failed to meet a deadline on Monday to pay for its March gas supplies. Putin discussed how to respond with his government on Wednesday but opted to hold talks with Europe before pressing ahead with any new punitive action.

In the letter, Putin called for talks involving economy, finance and energy ministers on “concerted actions to stabilise Ukraine’s economy” and ensure Russian gas deliveries.

“We must lose no time in beginning to coordinate concrete steps. It is towards this end that we appeal to our European partners,” Putin wrote.

He said Ukraine’s economic crisis was partly caused by unbalanced trade with the EU.

“It goes without saying that Russia is prepared to participate in the effort to stabilize and restore Ukraine’s economy. However, not in a unilateral way, but on equal conditions with our European partners,” Putin wrote.

Russia has nearly doubled the price it charges Ukraine for gas since the ouster in February of President Viktor Yanukovich, who had pleased Putin by spurning landmark trade and political deals with the EU in favour of closer Russia ties.